OFFER AND ACCEPTANCEOffer / Proposal

A Proposal is defined as "when one person signifies to another his willingness to do or to abstain from doing anything, with a view to obtaining the assent of that other to such act or abstinence, he is said to make a proposal." [Section 2(a)]. A PROPOSAL IS AN EXPRESSION OF WILL OR INTENTION

Willingness to do or Abstain from doingA person may express his willingness to do something or to abstain from doing something e.g it may be an offer to construct a wall to provide privacy or not to construct a wall so that free passage of light and air may not be obstructed.

Kinds of Offer1. Express: When an offer is expressed by words spoken or written it is termed as an

express offer.2. Implied: Implied offer means an offer made by conduct. when one person allows the

other to perform certain acts under such circumstances that nobody would accept them without consideration it will amount to an offer by conduct and the permission of the party ,who is benefited by such performance, will amount to his acceptance .such an acceptance will be asked to pay for it.

Examples of Implied OfferA bus company runs buses between Tower to Malir. There is an implied offer from the bus company to take any person on the route who is prepared to pay the prescribed fare. the offer will be said to be accepted by a passenger as soon as he takes seat in the bus.

A bid at an auction is an implied offer to buy. Similarly consuming eatables at a self service restaurant, both create implied promise to pay for the benefits enjoyed.

To whom offer is made Specific Offer – An offer made to a definite person or body of persons General Offer - When an offer is addressed to the whole world , it is called general offer.

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Case Example of General OfferCarlill vs. Carbolic Smoke Ball Co. 's case,

the patent-medicine company advertised that it would give a reward of £100 to anyone who contracted influenza after using the smoke balls of the company for a certain period according to the printed directions. Mrs. Carlill purchased the advertised smoke ball and contracted influenza in spite of using the smoke ball according to the printed instructions. She claimed the reward of £100. The claim was resisted by the company on the ground that offer was not made to her and that in any case she had not communicated her acceptance of the offer. She filed a suit for the recovery of the reward. Held: She could recover the reward as she had accepted the offer by complying with the terms of the offer.

Essential requirements of a Valid OfferAn offer must have certain essentials in order to constitute it a valid offer. These are:1. The offer must be made with a view to obtain acceptance/ assent of the other party.

Case : Harris vs. Nickerson ( advt. In newspaper for sale but later cancelled)2. The offer must be made with the intention of creating legal relations.3. The terms of offer must be definite, unambiguous and certain or capable of being made

certain. The terms of the offer must not be loose, vague or ambiguous.Taylor vs. Portington ( Handsomely decorated)

4. An offer must be distinguished from (a) a mere declaration of intention or (b) an invitation to offer or to treat.

An auctioneer, at the time of auction, invites offers from the would-be-bidders. He is not making a proposal.

A display of goods with a price on them in a shop window is construed an invitation to offer and not an offer to sell.

5. Offer must be Communicated to the offereeCase Lalman Shukla vs. Gauri Dutt (servant and missing nephew)

6. It may be conditional7. Lapse of an offer8. An invitation to offer is not an offer9. Offer should not contain a term the non-compliance of which would amount to acceptance

Termination of an Offer The offer lapses after stipulated or reasonable time An offer lapses by the death or insanity of the offeror or the offeree before acceptance. An offer terminates when rejected by the offeree. An offer terminates when revoked by the offeror before acceptance.

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An offer terminates by not being accepted in the mode prescribed, or if no mode is prescribed, in some usual and reasonable manner.

A conditional offer terminates when the condition is not accepted by the offeree. Counter Offer Cross Offers: Where two parties make identical offers to each other, in ignorance of each

other's offer, the offers are known as cross-offers and neither of the two can be called an acceptance of the other and, therefore, there is no contract.

ACCEPTANCESection 2(b) states that A proposal when the person to whom the proposal is made signifies his assent thereto the proposal is said to be accepted.An Acceptance may be

Express- words spoken or written Implied- accepted by conduct

Who Can Accept the Offer An offer may be accepted by the person to whom it is made.

Case: Boulton v. Jones 1857 A foreman bought the business from the owner. Then a certain amount of piping was ordered.The order was accepted and sent by the new owner. The offeror refused to pay because the old owner owed him money and there was a set-off agreement that the debt would be paid in the form of leather piping. It was an offer to a specific person which could be accepted only by him. Jones only made the offer because he thought to receive piping for free.

General offer- only the persons with the knowledge /notice of the offer can come forward and accept the offer. Case Carlill vs. Carbolic Smoke Ball Co.

Essentials of valid acceptance1. Acceptance must be absolute and unqualified/ unconditional

Case : A made an offer to B to purchase a house with possession from 25th July, the offer was followed by an acceptance suggesting possession from 1st August. Held there was no concluded contract (Routledge v/s Grant)

2. Acceptance must be communicated to the offeror. Case: a draft agreement relating to supply of coal was sent to the manager of a railway company for his acceptance. The manager wrote the word “Approve” and put the draft in the drawer of his table intending it to send it to the company’s solicitor for a formal contract to be drawn up. By some oversight the document remained in the drawer. Held, there is no contract. (Brogden v/s Metropolitan Rail Co.,)

3. Acceptance may be made within reasonable timeCase Ramsgate Victoria Hotel Co. Vs. Montefiore A person applied for shares in June can’t be bound by an allotment made in late November.

4. Acceptance must be according to the mode prescribed5. The acceptor must be aware of the proposal at the time of offer. Case Boulton vs. Jones6. Acceptance must be given before the offer lapses or before the offer is revoked

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7. Acceptance can’t be implied from silence

Communication of Offer, Acceptance & RevocationWhen parties are at a distance and the offer and acceptance are exchanged through post, rules contained in sec.4 & 5 apply

Communication of Offer and AcceptanceThe communication of offer is complete when it comes to the knowledge of the person to whom it is made/ offeree.

E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is posted 10 th

July. It reaches B on 12th July. The communication of the offer is complete when B receives the letter, i.e., on 12th July.

The Communication of Acceptance is completeAs against the proposer-when it is put into course of transmission to him so as to be out of the power of the acceptorAs against the acceptor- when it comes to the knowledge of the proposer

E.g., in the above case, when B accepts A’s Proposal, by a letter sent by post on 13th instant. The letter reaches on 15th instant. The communication of acceptance is complete, as against A, when the letter is posted, i.e., on 13th, as against B, when the letter is received by A, i.e., on 15th. (Case of NT Rama Rao)

Communication of Revocation • Communication of revocation (of offer or acceptance) is complete:

– As against the person who makes it when it is put into the course of transmission.– As against the person to whom it is made, when it comes to his knowledge.

E.g., A Proposes, by a letter, to sell a house to B at a certain price. The letter is posted 15 th

May. It reaches B on 20th May. A revokes his offer by a telegram on 19th May. The telegram reaches B on 21st May. The revocation is complete as against A when the telegram is dispatched, i.e., on 19th May. It is complete as against B when he receives it, i.e., on 21st May.

• Revocation of offer (sec5 para1)- A proposal may be revoked at any time before the communication of its acceptance is complete as against the proposer but not afterwards.

• (Revocation of acceptance sec5 para2 )- An acceptance may be revoked at any time before the communication of the acceptance is complete as against the acceptor, but not afterwards.A proposes by a letter sent by post to sell his to B. the letter is posted on the 1st of the month. B accept the proposal by a letter sent by post on the 4th. The letter reaches A on 6th. A may revoke his offer at any time before B post his letter of accpetance i.e 4th but not afterwards. B may revoke his acceptance at any time before the letter of acceptance reaches A i.e 6th but not afterwards.

P r e p a r e d b y :Muhammad Asad AliMBA (Finance), MA (Eco), (CA)

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